December 16, 2010

Tony Tavares hiring coming soon...maybe?

Tony Tavares may be named the interim president/CEO of the Stars today, tomorrow or sometime next week. That's as much as I can nail it down _ and it appears that's as close as anyone close to the situation can nail it down, too.

The hiring of Tavares actually allows us a good look into the sale of the Stars, and just how complicated the ownership process has been.

As we have said before, the lenders who have assumed the debt left by the default of loans by Hicks Sports Group are the owners of the team. Monarch Investments, J.P. Morgan and a few others are the lead lenders, while there are also a large group of ``B'' lenders who are hoping for the best, but might not get much of a payout at the end.

Still, the lenders have an executive committee (some call it a steering committee or ad hoc committee) and they are making the decisions on how to move forward. Do they take what they consider to be a low offer by one of the buyers who have been approved by the NHL to bid on the team? Do they tell all parties involved they want an auction? Do they ponder an organized bankruptcy (as they did with the Texas Rangers). Or do they put money into the team, pay all of the bills until the end of the season and try to sell it in the summer with the thought being that the financial environment will be better?

It appears they are very close to choosing the last option, and that Tavares will provide a very solid conduit between the executive committee and GM Joe Nieuwendyk, as well as help polish up the team and present it to the current bidders or to a new group of bidders.

As the Boston Globe reported Sunday, Vancouver businessman Tom Gaglardi did make an offer for the team and it was turned down. There are differing opinions on what that offer was (The Globe reported $175 million), and there are differing opinions on why it was turned down. The Globe reported that it was because NHL Commissioner Gary Bettman said it was not enough. Several people I have talked to said that while Bettman advises the executive committee and could even persuade the executive committee that he does not have veto power on a deal.

Bottom line, if the lenders want to unload the team, they have that option.

One of the problems with Bettman possibly telling the lenders that they have to hang onto the team is that the Stars are eligible only for limited revenue sharing. The collective bargaining agreement makes stipulations that limit how much funding a ``top 10 market'' can receive, and the Stars are a ``top 10 market'' by definition of the CBA. Thus, while they can get advances on television money or league playoff revenue, they can't get ``bailouts'' that are given to teams like Phoenix or Nashville.

So, the lenders, I believe, do have the final say on these things. That said, the Stars are a very important franchise in the structure of the NHL, and neither the Board of Governors nor Bettman want it going for a ``distressed'' price, so there will certainly be lobbying on the part of the NHL to make sure this deal is done at the right price. In addition, if a potential buyer were to put stipulations in the offer _ such as asking for funding if the CBA's rules are not changed in regards to revenue sharing after it expires in 2013 _ then Bettman can reject those riders.

The Globe also reported that Gaglardi, whose family owns the Sandman Hotel Group among other hospitality interests in Canada, is out on bidding for the Stars. A source within the Gaglardi group said that's not true. The source said Gaglardi would certainly be interested in bidding on the team if an auction was started.

Calgary oilman Bill Gallacher pulled out on the bidding earlier in the year, but that was for personal reasons. Gaglardi still is interested, but only at the right price.

As much as the Stars and NHL hate it when the sale of the Coyotes is brought up in comparison, there is information in Phoenix that is helpful in understanding the Stars' situation. Matthew Hulsizer is in the process of buying the Coyotes, and the City of Glendale on Tuesday night approved a huge package that will assist him in that process. The city is going to give Hulsizer $100 million to buy the team from the NHL for $170 million. And even with that, Hulsizer said that this is a risky investment where he is going to have to lose money before he can finally make money.

The Stars clearly are not in that bad of shape. Forbes lists them as the 10th most valuable franchise in the NHL at $228 million. However, the point that you have to lose money before you make it is pertinent here. If a new owner tries to run the Stars at the salary cap floor, he will likely struggle to put a winning product on the ice. If the team doesn't win, people will not come to watch it.

Thus, a new owner has to be prepared to raise the payroll in hopes that the team will win and the building will be full. Well, to follow that strategy, the team will lose money in the short-term before the building starts filling up or a new TV deal can pump more money into the franchise. And potential owners are factoring future losses into the price they are willing to pay for the team right now.

A recent look at owners who have gotten out of the NHL provides an interesting warning sign. Jerry Moyes, who owned the Coyotes, lost money. Oren Koules and Len Barrie, who owned the Lightning, lost money. If you really want to do this in a business way, you cannot take on too much debt when purchasing the team _ and so the potential owners have done their due diligence and have come up with numbers they feel will work for the Stars. If they have to lose money in the future, they want the best possible price for the team now.

Those numbers don't work for the lenders right now, who believe that with good management this team could soar in value and could make tons of money in the future.

Now, could a group decide this is a good tax write-off and up its bid? Sure. Could a group provide its own money and sustain the losses the way Mark Cuban seems to do with the Mavericks, thus avoiding the huge debt service? Definitely. But it would take a special owner to do that.

So, it appears Tavares will step in and help bridge the gap, and possibly schmooze a few of these prospective owners. At the very least, the lenders will get a first-hand look at what it will be like for any prospective owner to pay the bills _ and that has to be a good thing, one would think.